Estimating a property’s After Repair Value (ARV)
Estimating a property's After Repair Value (ARV) is one of the top skills every real estate investor should have before making an offer on a property. This skill is essential to calculating the Maximum Allowable Offer (MAO), which is necessary before making an offer on a property.
When the ARV and MAO are calculated correctly, investors make better deals on investment properties, resulting in higher profits. So, in this article, we show you how to estimate a property's After Repair Value (ARV).
Estimate the After Repair Value (ARV)
Estimating the ARV is a matter of reviewing comparable properties, and estimating the value after the property is repaired and ready to sell.
The process of estimating the ARV includes:
- Review information about the property you may purchase.
- Review comparable properties (i.e., the comps).
- Compare the comps with the property you are considering, and estimate the ARV.
Get the Comps
The problem many investors have in estimating the ARV is getting the comps. So, here are five ways to get the comps, so you can estimate the ARV.
#1 Buy Investment Property From a Wholesaler
If you buy your investment properties from a wholesaler, analysis of the property should be provided to you, often in a proforma format. The best real estate wholesalers do the legwork for their clients. So, once you have a good track record with a wholesaler, you won’t need to personally look up the comps and do the calculations.
#2 MLS
If you are a real estate investor and want to personally look up the comps and do the analysis, the MLS (Multiple Listing Service) is the easiest and most comprehensive method of getting the information.
Information in the MLS database includes stats on listed, pending, and recently sold properties by location.
The problem is that the MLS is only available to real estate agents. So, you will need to get your real estate license, or work with a wholesaler who is licensed, to access the information.
#3 Network with Real Estate Agents
Networking with real estate agents and throwing them some deals is a good way to get the information you need about comps. Many of these agents will print out a copy of comparable properties for you, and some may help you estimate the ARV of properties you are researching.
#4 Real Estate Websites
Real estate websites like Zillow have information about properties, though it is not as comprehensive as the MLS. These sites also list homes for sale, which is helpful when searching for prospective investment properties. Remember, though, that the sales price is usually less than the listing price.
#5 Search Public Records
In addition to the MLS and online real estate websites, you can also go through public records to get the comps. Every time a property is bought or sold, a public record is created.
